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You are what you mEAT!

Stephen Johnston

Portfolio Manager

Stephen is the Portfolio Manager of the KiwiSaver Aggressive Fund and Co-Manager of the Milford Global Equity Fund. He has over 20 years of investment experience across global financial markets and different asset classes. Prior to joining Milford in 2013, Stephen was a partner at London based Adelante Asset Management where he was a Senior Portfolio Manager, managing an Emerging Market Equity Fund. Prior to Adelante, Stephen was a Portfolio Manager in London at Threadneedle Investments and Convivo Capital Management, managing various Emerging Market Funds.

Stephen holds a Bachelor of Laws and a Bachelor of Commerce from the University of Otago and was admitted to the Bar as a Barrister and Solicitor of the High Court of New Zealand in 1995.

August 20, 2019

Throughout my investment career, it never ceases to amaze me how businesses can come from nowhere and, virtually overnight (slightly exaggerating), be multi-billion dollar businesses.

The latest craze is plant-based meat. Think of it as a vegetarian substitute for bog standard meat products, for example, meat patties in your burgers. Ingredients for a plant-based meat patty could include your very own garden pea, coconut oil and they even use beetroot juice to make the burger “bleed” like the real thing.

Recently listed US company, Beyond Meat, is the poster child for plant-based meats and have you seen the share price? At one stage, the company shares were up 8 times since its IPO in May. Today, the company is valued at a whopping NZ$15.3 billion dollars.

Beyond Meat burger patty

In investing, sometimes the greatest challenge is to overcome your own internal biases. Many books have been written on biases and the one I am about to illustrate is called “belief perseverance bias”, where you cling to your long-held beliefs.

I am from many generations of Southland farmers and to me, the thought that a plant-based meat could have a future and disrupt the agricultural industry, was absurd.

It is very easy just to dismiss new business models, new innovators and put them down to a “bunch of bull”.

However, one thing I have learnt in investing over the years, is to keep an open mind, and not to be dogmatic in your views because in this fast-changing world, anything is possible.

I was recently at a Global Consumer Conference in France, and it was clear from my meetings that many of the best global consumer companies (Unilever, Nestle, Hormel Foods, Tyson Foods, Kellogg’s & General Mills etc.) are investing in plant-based foods, with some urgency.

In addition, well respected publication, the Economist, has declared that 2019 is the year of the vegan. “2019 will be the year veganism goes mainstream”.

So, what is all the fuss about plant-based meats?

The case for alternative meat solutions like plant-based meats can be summed up as follows:

It is claimed they are healthier for humans. The health and wellness trend is growing in popularity and red meat and processed meat have been linked to certain diseases. I don’t have any insight on this point, but I have seen arguments both ways.

Also, they are better for the environment and resource conservation. According to Bank of America Merrill Lynch, food systems contribute approximately 26% of human-made global greenhouse gas emissions. The younger generation, millennials (including my kids), care about the issue of sustainability and are more aware of the damage to the environment from food production and want to make a stand. Impossible Foods, a competitor to Beyond Meat, claims a plant-based burger uses 87% less water, 96% less land and produces 89% less greenhouse gas emissions than a meat burger. It sounds compelling from an environmental perspective.

Finally, animal welfare improvement. Globally, there is an increasing focus on farming methods including how animals are raised, their living conditions, and the slaughter process. This is currently very topical in New Zealand. A lot of millennials, including my daughter, are against eating intelligent life for a variety of reasons.

How big is the potential market for alternative meats?

If the experts can be believed, it could be huge. According to investment bank Barclays, the global meat market is around NZ$2.15 trillion dollars and they forecast that global sales of alternative meat could reach NZ$215 billion or a 10% market share. Another report from UBS estimates that over the next 10 years, plant-based meats will grow 25% a year to reach NZ$130 billion by 2030.

What is lab grown or cultured meat?

Lab grown meat differs from plant-based meat in that it is produced from stem cells from a cow through a biopsy (visit www.mosameat.com to find out more). Dutch company Mosa Meat, funded by Google founder Sergey Brin, produced the first lab grown hamburger in 2013 at a cost of NZ $430,000, but costs have now fallen dramatically. Lab grown meats are yet to hit the market, but it is just a matter of time. Mosa Meat now claim with one sample from a cow, they can produce enough meat to make 80,000 quarter pounders. This could be one way to address poverty and malnutrition in poorer regions.

Barclays did highlight certain barriers for lab meats. It is hard to create a T-bone steak in a lab!

Implications for New Zealand?

Could be massive, Impossible Foods’ stated goal is to replace all traditional meat by 2035.

We need to watch developments closely because this could be a game changer for the meat industry and obviously very important to an economy like New Zealand’s.

Outside the environmental benefits, I think the key to accelerate growth in alternative meats would be proven health benefits and cost savings, making it a product for the mass market.

Conclusion

At this juncture, it is hard to predict if plant-based meats are the next big thing. There remain plenty of sceptics, including myself, but there always are when big changes are about to take place.

Kicking the tyres is part of our due diligence process so I “took the plunge” and tried a Beyond Meat burger for myself (see below). I have had a lot of burgers in my time, but I couldn’t tell the difference. Although, it was covered in mayo, mustard, red onion and pickles.

One day, this farmer may become vegan (mince espoir*) although for now, I am sticking to my Southland beef. But the “steaks” have never been higher.

* slim chance

Tasting a plant based burger…not bad!

Disclaimer: This article is intended to provide general information only. It does not take into account your investment needs or personal circumstances. It is not intended to be viewed as investment or financial advice. Should you require financial advice you should always speak to an Authorised Financial Adviser. Past performance is not a guarantee of future performance.